Washington was confident that it was ahead and wanted to keep it that way. So the Biden administration ramped up restrictions banning the export of advanced chips and technology to China.
That's why DeepSeek's launch has astonished Silicon Valley and the world. The firm says its powerful model is far cheaper than the billions US firms have spent on AI.
So how did a little-known company - whose founder is being hailed on Chinese social media as an "AI hero" - pull this off?
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The challenge
When the US barred the world's leading chip-makers such as Nvidia from selling advanced tech to China, it was certainly a blow.
Those chips are essential for building powerful AI models that can perform a range of human tasks, from answering basic queries to solving complex maths problems.
DeepSeek's founder Liang Wenfeng described the chip ban as their "main challenge" in interviews with local media.
Long before the ban, DeepSeek acquired a "substantial stockpile" of Nvidia A100 chips - estimates range from 10,000 to 50,000 - according to the Mt Technology Review.
Leading Al models in the West use an estimated 16,000 specialised chips. But DeepSeek says it trained its AI model using 2,000 such chips, and thousands of lower-grade chips - which is what makes its product cheaper.
Some, including US tech billionaire Elon Musk, have questioned this claim, arguing the company cannot reveal how many advanced chips it really used given the restrictions.
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